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Roth IRA goof up

mikewirt — Sun, 26 Jan 2020 19:28:51 GMT

I didn't realize Roth IRA contributions had to be from unearned income (dumb!), which I no longer have since I'm retired. On 01/02/2018 I made a contribution for the 2017 tax years. I did the same on 01/17/2019 for the 2018 tax year and on 12/17/2019 for the 2019 tax years. Last week I withdrew the amount of the contributions but not the estimated investment income from them.

I know I have pay a penalty as well as taxes on the earnings but can't figure out how to do that for prior years.

1. I know I'm OK with the last contribution since I pulled it out prior to the 2019 filing deadline.

2. Would I also be OK (no taxes or penalty) on the 01/17/2019 contribution (even though it was for 2018) because it was made in 2019?

3. Can I take care of whatever I have to pay with one Form 5329 that I file for my 2019 taxes or do I hav to go back and file an amended return for prior years?

Re: Roth IRA goof up

macuser_22 — Sun, 26 Jan 2020 19:46:13 GMT

@mikewirt wrote:

I didn't realize Roth IRA contributions had to be from unearned income (dumb!), which I no longer have since I'm retired. On 01/02/2018 I made a contribution for the 2017 tax years. I did the same on 01/17/2019 for the 2018 tax year and on 12/17/2019 for the 2019 tax years. Last week I withdrew the amount of the contributions but not the estimated investment income from them.

I know I have pay a penalty as well as taxes on the earnings but can't figure out how to do that for prior years.

1. I know I'm OK with the last contribution since I pulled it out prior to the 2019 filing deadline.

2. Would I also be OK (no taxes or penalty) on the 01/17/2019 contribution (even though it was for 2018) because it was made in 2019?

3. Can I take care of whatever I have to pay with one Form 5329 that I file for my 2019 taxes or do I hav to go back and file an amended return for prior years?

1 - Correct. Ask for a "return of contribution" for the 2019 contribution. Any earnings must also be returned.

2 - If the contribution was *for* 2018 then you had until the extended 2018 due date (Oct 15, 2019) to remove the contribution penalty free.

3 - You must file a 5329 for each year that the contribution remained in the IRA. That would be a 2017 5329 for the 2017 contribution. A 2018 5320 for both another 6% penalty for the 2017 contribution that was still in the IRA and the 2018 contribution that was not timely removed.

The 2017 and 2018 contributions must be removed with a normal distribution. You will not pay tax on the distribution since the amount of contribution itself can always be removed tax free. You also DO NOT need to remove any earnings for the 2017 and 2018 contributions - only the contribution itself. Paying the 6% penalty allows the earnings to remain in the IRA.

Unless you have another reason to amend the 2017 and 2018 5239 forms can be filed by themselves.

Re: Roth IRA goof up

mikewirt — Mon, 27 Jan 2020 01:29:01 GMT

That all makes sense. I obviously misunderstood the not-so-helpful, abbreviated 5239 instructions about the penalty in lieu of taxes on earnings. I managed to download the 2017 and 2018 5329s from non-IRS sites.

Thanks for the info.